The Rub, Spill, and Ton Corporations file Federal income tax returns on a consolidated basis. The group's tax return currently is under audit. Under a valid taxsharing agreement, each corporation is liable for onethird of the group's consolidated tax liability. The affiliates have agreed with the auditor that the group's unpaid liability for the year is $90,000. Because of an incorrect tax return position, another $3,000 in interest and an $18,000 penalty is attributable solely to Ton. At present, only Rub is solvent and has the cash with which to make such a tax payment. What is the maximum amount for which the government could be successful in forcing Rub to satisfy the outstanding liabilities of the consolidated group?

Question

The Rub, Spill, and Ton Corporations file Federal income tax returns on a consolidated basis. The group's tax return currently is under audit. Under a valid tax­sharing agreement, each corporation is liable for one­third of the group's consolidated tax liability. The affiliates have agreed with the auditor that the group's unpaid liability for the year is $90,000. Because of an incorrect tax return position, another $3,000 in interest and an $18,000 penalty is attributable solely to Ton. At present, only Rub is solvent and has the cash with which to make such a tax payment. What is the maximum amount for which the government could be successful in forcing Rub to satisfy the outstanding liabilities of the consolidated group?

Quizplus · Accepted Answer

Rub, as a member of the consolidated group, can be held liable for the entire group's tax liability, including penalties and interest. Therefore, Rub could be forced to pay the full $111,000 ($90,000 tax liability + $3,000 interest + $18,000 penalty).

The Rub, Spill, and Ton Corporations File Federal Income Tax